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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI RAMIT KOCHAR, HONBLEShri Nikhil Tiwari
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)–6 Mumbai [hereinafter in short “Ld.CIT(A)”] dated 28.11.2018 for the A.Y. 2014-15 in sustaining the penalty levied u/s. 271(1)(c) of the Act.
Briefly stated the facts are that, the Assessing Officer while completing the assessment noticed that assessee claimed expenses of (A.Y: 2014-15) M/s Vyanjan Hotels Pvt. Ltd., ₹.1,15,28,636/- on account of interest paid by the assessee. Assessing Officer noticed that assessee paid interest on loan obtained from Kotak Bank towards purchase of Flat No. 4A/4B/4C, Chateau Paradise, Abdul Ghaffar Khan Road, Worli. Assessing Officer was of the opinion that since the assessee had not put to use the property for business purpose and interest was claimed, the said expenses cannot be allowed as deduction u/s. 36(1)(iii) of the Act. According to the Assessing Officer interest is allowable u/s. 36(1)(iii) of the Act only when the said asset is put to use for the purpose of business. Accordingly, he disallowed the interest while completing the assessment u/s. 143(3) of the Act which was accepted by the assessee and no further appeal was preferred.
Assessing Officer initiated penalty proceedings u/s. 271(1)(c) of the Act and by order dated 30.05.2017, he concluded that by claiming such expenditure, the assessee has made an attempt to evade the tax by furnishing inaccurate particulars of income. Accordingly, penalty was levied. On appeal the Ld.CIT(A) sustained the penalty against which the assessee is in appeal before us.
Ld. Counsel for the assessee before us submits that there is complete disclosure of facts in the return of income regarding the asset purchased by the assessee and the claim of interest made on loan
(A.Y: 2014-15) M/s Vyanjan Hotels Pvt. Ltd., obtained for purchase of the property. Ld. Counsel for the assessee further submits that the asset purchased was reflected as stock in trade in the books and therefore claim made for deduction u/s. 36(1)(iii) of the Act in respect of interest was a bonafide claim. Referring to Page Nos. 53 to 56 of the Paper Book, the Ld. Counsel for the assessee submits that in the Books of Accounts the assessee has shown the property purchased under current assets as inventories. Ld. Counsel for the assessee submits that an identical issue came up for the A.Y. 2012-13 wherein the Ld.CIT(A) deleted the penalty. However, it is submitted that coming to the current Assessment Year even though the facts involved in the current year were identical to the facts of A.Y. 2012-13 being the first year of claim the Ld.CIT(A) sustained the penalty.
Referring to the order of the Tribunal in ITA.No. 5257/Mum/2016 dated 31.12.2018 in assessee’s own case, Ld. Counsel for the assessee submits that during the A.Y. 2012-13 assessee had taken loan from Kotak Bank towards purchase of flats at Worli and paid interest of ₹.1,33,56,280/- which was debited to the Profit and Loss Account as expenses of the business by treating the said flats as stock in trade. It is submitted that the assessee filed belated return declaring business loss which mainly arise on account of interest expenses. The Assessing Officer disallowed the said interest u/s. 36(1)(iii) of the Act and initiated
(A.Y: 2014-15) M/s Vyanjan Hotels Pvt. Ltd., penalty proceedings u/s. 271(1)(c) of the Act and accordingly penalty was levied. On further appeal the Ld.CIT(A) deleted the penalty levied placing reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Reliance Petro Products (P.) Ltd. [322 ITR 158] wherein it was held that mere making a claim, which is not sustainable by law, by itself, will not amount to furnishing of inaccurate particulars and thereby no penalty can be levied. It is submitted that the Tribunal in ITA.No. 5257/Mum/2016 dated 31.12.2018 upheld the order of the Ld.CIT(A). Referring to the Page Nos. 63 to 73 of the Paper Book which is the order of the Tribunal for the A.Y. 2012-13 Ld. Counsel for the assessee submits that the Tribunal held that no penalty can be levied when there is a full disclosure of facts. Tribunal placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Reliance Petro products Pvt. Ltd., (supra). It was observed by the Tribunal that the loss was not claimed to be carried forward by the assessee as belated return was filed and therefore there was no loss to the Revenue.
Ld. Counsel for the assessee submits that the Tribunal held that allowability of deduction u/s. 36(1)(iii) of the Act is a debatable issue and hence penalty cannot be the levied on debatable issue and therefore it was held that there was no furnishing of inaccurate particulars or concealment of income. Ld. Counsel for the assessee submits that there
(A.Y: 2014-15) M/s Vyanjan Hotels Pvt. Ltd., cannot be any disallowance of interest u/s. 36(1)(iii) of the Act when interest was incurred for purchases of inventory. It is submitted that penalty cannot be levied when there was no evasion of tax. It is submitted that no penalty was therefore is warranted when there is a full disclosure of facts. Ld. Counsel for the assessee further submits that in the year under consideration the facts and circumstances are similar to the facts in earlier Assessment Year i.e. A.Y. 2012-13 and it is submitted that assessee has shown interest expenses in the Profit and Loss Account as well as in the return of income thereby full disclosure was made by the assessee with regard to these expenses.
Ld. Counsel for the assessee further submitted that though Assessee had carried forward the loss of ₹.1,19,15,686/- of A.Y.2014-15 to the subsequent A.Y. 2015-16, the said carried forward loss was not claimed by the assessee in the return of income filed on 16.10.2016 for subsequent year i.e. for the A.Y.2016-17 which is prior to completion final order assessment for A.Y. 2014-15 on 22.11.2016. Ld. Counsel for the assessee further referring to Page Nos. 18-46 of the Paper Book which is the copy of return for the A.Y. 2016-17 submitted that that since assessee has not claimed and carried forward the said loss on account of interest disallowance there was no loss caused to the Revenue. Ld. Counsel for the assessee submits that since the penalty was deleted by the Tribunal
(A.Y: 2014-15) M/s Vyanjan Hotels Pvt. Ltd., for the A.Y. 2012-13 the said decision squarely applies to the facts of the case for the assessment year under consideration and the same may be followed.
Without prejudice Ld. Counsel for the assessee submits that penalty order passed u/s. 271(1)(c) of the Act would be invalid if inappropriate portion of the limb of penalty has not been stricken off by the Assessing Officer. Reliance was placed on the following decisions: - (I) Hafeez Contractor (ITA 6222/M/2013) dated 2 September 2015 approved by Bombay High Court in (ITA No. 796 of 2016) (Bom) dated 11 December 2018 (II) CIT Vs. M/s SSA's Emerald Meadows (SC) (CC No. 11485/2016) dated 05 August 2016 approving the decision of Karnataka HC dated 23 November 2015 (ITA No. 380 of 2015) (III) CIT Vs Samson Perinchery (Bom.) (HC) (ITA No. 1154 of 2014) dated 05.01.2017 approving the decision of ITAT dated 11 October 2013 (ITA No. 4630/M/2013) (IV) SICOM Ltd. (ITA No. 6387/Mum/2014) dated 06 April 2018 (Mum) (V) CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 92 DTR 111 (Karnataka HC)
9. Ld. DR vehemently supported the orders of the authorities below.
We have heard the rival submissions, perused the orders of the authorities below. On a perusal of the orders of the Assessing Officer as well as the Ld.CIT(A), we observe that identical issue where interest u/s.36(1)(iii) of the Act was disallowed and penalty u/s. 271(1)(c) of the Act was levied came up for A.Y. 2012-13, and when the matter carried before the Tribunal by the Revenue the Tribunal sustained the order of (A.Y: 2014-15) M/s Vyanjan Hotels Pvt. Ltd., the Ld.CIT(A) in deleting the penalty. While deleting the penalty the Tribunal observed as under:
We have heard the rival submissions, perused the orders of the authorities below. In this case, assessee filed return of income belatedly and the loss incurred by the assessee on account of debiting the interest expenses to the Profit and Loss Account, is not allowable to carry forward. In the assessment proceedings the Assessing Officer held that interest expenses cannot be allowed as deduction. The Assessing Officer disallowed the interest expenses and computed the income at ₹.1,33,56,280/-. He initiated penalty proceedings and levied penalty at 150% on the disallowance of interest made in the Assessment Order. It is not in dispute that the assessee has made complete disclosure of interest expenses in the Books of Accounts as well as in the return of income. The return was filed belatedly and no loss could be carried forward to the subsequent Assessment Year. The assessee did not carry forward the loss to the subsequent Assessment Year.
10. The claim of the assessee i.e. interest which was debited to the Profit and Loss Account on borrowed funds which was utilized for purchase of three flats, which were treated as stock in trade in the Books of Accounts by the assessee, was denied by the Assessing Officer. Mere rejection of claim will not automatically lead to concealment of income, when there is complete disclosure of the details of the transactions. This aspect of the matter has been considered by the Ld.CIT(A) and deleted the disallowance following the decision of the Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts Pvt. Ltd., (supra) observing as under: - “5. I have carefully considered the facts of the 'case and the submissions of the Ld. AR. I have also gone through the assessment order u/s. 143(3) and the penalty order u/s.271(1)(c) passed by the AO. I have also gone through the decisions relied upon by the AO and Ld. AR. The AO has levied penalty on the ground that the flat purchased by the assessee had not been put to use for business purpose for the entire previous year relevant to the subject assessment year. However, it had claimed interest expense towards purchase of the said flat. Thus, it had not only concealed the particulars of its income but had also furnished inaccurate particulars of income. The Ld. AR, on the other hand, submitted that appellant has disclosed complete details in respect of the said interest expenses of Rs.1,33,56,280/- debited to the profit and loss account. Hence, concealment of income or furnishing inaccurate particulars of income does not arise. It has relied on the decisions in the case of Reliance Petro Products (P) Ltd. (supra), Nokia India Pvt. Ltd. (supra) and other decisions reproduced above. 5.1 Let us now discuss the scope of section 271(1)(c) of the Act. Penalty is levied over and above any tax or interest payable by the appellant. It is thus distinct and separate from the tax payable. Penalty proceedings are also distinct and separate from assessment proceedings [CIT Vs. Dharam Chand L. Shah, 204 ITR 462 (Bom), Kanbay Software India Pvt. Ltd. (2009) 31 SOT 153 (Pune)]. It is well settled that the provisions dealing with penalty should be strictly construed. It is to be construed within the terms and language of the particular section. Findings in the assessment proceedings for determining or computing tax cannot be said to be conclusive for the purpose of levy of penalty. Penalty u/s.271(1)(c) is levied @ 100 per cent to 300 per cent of tax sought to be evaded for concealment of particulars of income or furnishing inaccurate particulars thereof. Section 271(1)(c) needs to be read along with the Explanations provided therein. Section 271(1)(c) and Explanation-1 of sec.271(1)(c) read as under :-
(A.Y: 2014-15) M/s Vyanjan Hotels Pvt. Ltd., "271. Failure to furnish returns, comply with notices, concealment of income etc. (1) if the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person – ………… (c) Has concealed the particulars of his income or furnished inaccurate particulars of such income, or He may direct that such person shall pay by way of penalty- (iii) in the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of fax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits. Explanation 1 - Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which the particulars have been concealed. 5.2 Let us now examine the above facts in the light of the various decisions including the decision of the Hon'ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd. (supra). The Hon'ble Court has considered the-nature of default which would constitute concealment of particulars of income or furnishing of inaccurate particulars, in the context of the provisions of section 271(1)(c) of the Act. After analyzing its own decisions in the case of Dilip N. Shroff v. JCIT (291 ITR 519), Union of India v. Dharmendra Textiles (306 ITR 277), Union of India v. Rajasthan Spinning and Weaving Mills (224 CTR 1) and CIT v. Atul Mohan Jindal (317 ITR 1), the Hon'ble Court stated as under:- "The basic reasons why decision in Dilip N. Shroff v. Joint CIT was overruled by this Court in Union of India v. Dharmendra Textile Processors, was that according to this court the effect and difference between section 271(1)(c) and section 276C of the Act was lost sight on in the case of Dilip N. Shroff v. Joint CIT. However, it must be pointed out that in Union of India v. Dharmendra Textile Processors, no fault was found with the reasoning in the decision in Dilip N. Shroff v. Joint CIT, (A.Y: 2014-15) M/s Vyanjan Hotels Pvt. Ltd., where the court explained the meaning of the terms "conceal" and "inaccurate". It was only the ultimate inference in Dilip N. Shroff v. Joint CIT to the effect that mens rea was an essential ingredient for the penalty u/s.271(1)(c) that the decision in Dilip N. Shroff v. Joint CIT was overruled." The department in the Reliance Petro Products (supra) had argued that since the appellant had claimed excessive deduction knowing that they are incorrect; it amounted to concealment of income. The Hon'ble Court did not find substance in such argument and noted that the above, by itself, to be insufficient to attract penalty. It held as under: "A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee.......As the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty u/s.271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature." 5.3 The ratio of the above case is applicable to the facts of the appellant. The appellant had claimed interest expenditure which was disallowed by the AO. The said expenses were claimed by the appellant in the profit and loss account on the basis of which the return of income was filed. The AO has made the addition which is not contested by the appellant. However, mere making of a claim, which is not maintainable in law, by itself, will not amount to furnishing inaccurate particulars of income. Hence, respectfully following the decision of Hon'ble Supreme Court in case of Reliance Petroproducts (supra), the penalty levied u/s.271(1)(c) is deleted and the ground is allowed.”
On a careful consideration of the observation of the Ld.CIT(A), we do not find any infirmity in the order passed by the Ld.CIT(A) in deleting the penalty levied u/s. 271(1)(c) of the Act as the assessee has made complete disclosure of details with regard to the claim for deduction u/s. 36(1)(iii) of the Act on the interest expenses in respect of the flats purchased and shown in the Books of Accounts as well as in the return of income. Further the loss arising out of such claim could also be not carried forward as the assessee filed belated return of income and therefore there is no loss to the Revenue. Further, whether the assessee is entitled for deduction U/s. 36(1)(iii) of the Act on the interest expenses on borrowed funds utilized for purchase of inventories / stock in trade is a debatable issue. Thus, we hold that there is neither concealment of income nor furnishing of inaccurate particulars of income by the assessee in respect of its claim for interest expenses. Hence no penalty is leviable u/s. 271(1)(c) of the Act. In the circumstances we do not see any valid reason to interfere with the judgement of the Ld.CIT(A) in deleting the penalty. Hence the order of the Ld.CIT(A) is sustained. As we have deleted the penalty on this ground the other legal contentions are not gone into.”
(A.Y: 2014-15) M/s Vyanjan Hotels Pvt. Ltd., 11. Facts remain unchanged except during the A.Y. 2012-13 assessee filed a belated return where the assessee could not carry forward the loss, and in the current assessment year assessee though claimed loss to be carried forward to A.Y. 2015-16 while filing return of income for the A.Y.2016-17 it had forgone the loss on account of disallowance made u/s.36(1)(iii) of the Act by not claiming carry forward of loss, which was much before the completion of assessment for the A.Y. 2014-15. The assessee has made complete disclosure in the return of income as well as in the Books of Accounts in respect of the property purchased and interest claimed u/s. 36(1)(iii) of the Act. It is not in dispute that the assets purchased by the assessee were shown as stock in trade by the assessee in its books. When the assets purchased by the assessee were shown as stock in trade the claim for deduction u/s. 36(1)(iii) of the Act on the loan paid by the assessee from the purchase of inventory is allowable or not is a debatable issue and therefore in our view the penalty u/s. 271(1)(c) of the Act which is otherwise leviable for concealment of income or for furnishing inaccurate particulars of such income will not attract. Levying of penalty u/s. 271(1)(c) of the Act is not automatic on merely making a claim which is not sustained by Revenue. Decision of the Hon'ble Supreme Court in the case of CIT v. Reliance Petro Products Pvt. Ltd., (supra) is relevant. Keeping in view the above factual matrix and (A.Y: 2014-15) M/s Vyanjan Hotels Pvt. Ltd., respectfully following the order of the Tribunal in assessee’s own case for the A.Y. 2012-13, we direct the Assessing Officer to delete the penalty for the assessment year under consideration. The other contentions raised by the assessee are not gone into.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on the 27th August, 2019